Macroeconomic. What is the connection between the real interest rate and the output demand curve?…

it is an assignment for macroeconomics. Intermediate level for 3 rd year university student. The topic is around “Real intertemporal model with investment”, ” the monetary intertemporal model: the neautrality of money, long-run inflation, and money demand”, and ” Market-Clearing models of the business cycle”.

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Assignment #3- Macroeconomics 2152a
Due: 11:59pm Monday July 25, 2011

This assignment covers material from weeks 8-11 (i.e. chapters 9,10 and 11 from the textbook). It is to be submitted via WebCT, preferably as a .rtf file or pdf file. To save the file as .rtf, simply choose Save As under File, and choose Rich Text Format. I will post solutions after the due date. Please ensure you include your last name and student number in the file name.

Total Marks: 100

Question 1 (10 marks)
What is the connection between the real interest rate and the output demand curve?

Question 2 (10 marks)
Briefly explain what effect the depreciation rate decreasing has on the variables in this economy. (hint: what values will change with certainty, and which are ambiguous? Explain why this is the case).

Question 3 (20 marks)
A) Explain, using the complete intertemporal model from Chapter 9, the equilibrium effects of a decrease in total factor productivity. You need not include graphs in your answer, just describe each effect. Include the overall effect on each of the model’s variables (i.e. increase, decrease, ambiguous). Also, explain why each effect takes place (e.g. if labour supply shifts, then why that happens, etc).

B) Now consider the monetary intertemporal model from Chapter 10, what happens in the money market? Include the overall effect on each of this model’s additional variables (i.e. increase, decrease, ambiguous). (e.g. if price level changes, then why that happens, etc. ) If any effect from A) was ambiguous and needed for this analysis, please assume the most likely effect.

Question 4 (20 marks)
A) Explain, using the complete intertemporal model from Chapter 9, the equilibrium effects of a temporary increase in government spending, G. You need not include graphs in your answer, just describe each effect. Include the overall effect on each of the model’s variables (i.e. increase, decrease, ambiguous). Also, explain why each effect takes place (e.g. if…

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